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Are you prepared for your Retirement
How much is enough?
One of the first questions people ask
when discussing their retirement is
“How much do I need to save to retire
comfortably?” It’s a good question;
naturally, you want to be confident
that your money will last as long as
possible and allow you to maintain
your chosen lifestyle.
That’s why, when you retire, your superannuation and other
assets become extremely important. There’s no longer a
regular salary coming in and, each year, inflation increases the
cost of goods and services.
It’s difficult to know exactly how much you’ll need to fund
your retirement. The Association of Superannuation Funds of
Australia (ASFA) attempts to provide a clearer picture of what
this may look like.
How much are you likely to spend?
Retirement is your time, so it’s worthwhile taking the time
to think about what you want to do. To help you with this, the
ASFA Retirement Standard provides a comprehensive picture
of how a modest lifestyle compares to a comfortable lifestyle
and how much you’ll need, whether you’re single or in a
couple. It also reflects changes in Australia’s living standards
and evolving spending patterns and outlines particular budgets
for key areas such as:
• communications
• health
• energy
• clothing
• household goods and services
• recreation, and
• transport.
The figures in table 1 estimate that, for a couple to maintain
a modest lifestyle in retirement, they’ll need $33,664pa
compared to $58,128pa for a couple who wish to live a
comfortable lifestyle. Importantly, both budgets assume that
the home is owned outright so it does not include the cost of
rent or mortgage repayments.
Table 1: Annual income – modest versus comfortable lifestyle
Modest lifestyle in
retirement
Comfortable lifestyle
in retirement
Single
Couple
Single
Couple
Income pa $23,363 $33,664 $42,433 $58,128
Source: ASFA Retirement Standard, June 2014.
Note: Single calculations are based on a female who is relatively healthy and
owns her own home.
The difference between these two budgets comes down to
extra items that are considered to be ‘comforts’, such as
updating the kitchen or bathroom, eating out from time-to-
time, entertaining family or friends at home, having private
health insurance at the top rate, enjoying an occasional
overseas holiday and being able to afford to buy additional
personal products and gifts.
But remember, a comfortable retirement isn’t a luxurious
retirement. You’ll still need to budget for, and monitor, your
expenses. For example, the comfortable retirement figures
for a couple only allow an amount of $306.41 per week for
leisure and that includes the allowance for holidays and
entertainment.
How does the age pension stack up?
As shown in table 2, if you’re relying on the age pension and
planning on a comfortable lifestyle in retirement, you’ll have a
gap of over $20,000pa in funding.
Table 2: Current maximum Centrelink age pension amounts
Maximum age pension (pa)
Single
Couple
$22,211.80
$33,488
Source: Centrelink September 2014.
How much do you need to save?
That’s the all-important question. As you can see from table 3,
the ASFA Retirement Standard suggests the lump sum amount
required for a couple to support a comfortable lifestyle is
$510,000. If you compare this to the superannuation lump sum
amounts by salary in table 4, you’ll see that there’s a gap. In
fact, the average super balance held by 60-64 year olds is just
$75,4571 so many retirees will need to rely on other sources of
income to support their retirement. Super just isn’t enough.
Table 3: Lump sums required
To support comfortable
lifestyle for a:
You’ll likely need
a lump sum of:
Couple
$510,000
Single
$430,000
Source: ASFA Retirement Standard.
Note: assumes receipt of part age pension.
Table 4: Superannuation lump sums at rate of salary
Contribution levels
Wage of
$30,000
Wage of
$50,000
Wage of
$100,000
9% contributions $110,000 $183,000
$366,000
12% contributions $146,000 $244,000
$487,000
Note: Investment earnings taxed at current rates. Lump sum retirement
benefits are estimates calculated after 30 years in a taxed fund.
If you’re worried about your retirement saving, you may want to
consider contributing more to your super via a salary sacrifice
strategy.
Police Bank for many years have chosen Bridges2 as our
preferred Financial Planners. For more information about
superannuation or any aspect of your financial position, we can
arrange a complimentary, obligation free initial consultation
near you. Call 131 728 or visit www.policebank.com.au today.